How is India’s Startup ecosystem affected by the shutdown and takeover of Silicon Valley Bank by US regulators
The California Department of Financial Protection and Innovation shut down Silicon Valley Bank (SVB), the 16th biggest bank in the United States, on Friday and subsequently appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver. According to industry analysts, the failure of SVB, the largest vendor in the start-up ecosystem, is likely to have a negative influence on the Indian start-up environment since it has introduced a lot of uncertainty into the sector overnight.
According to the FDIC, as of December 31, 2022, SVB has roughly $209 billion in total assets and approximately $175.4 billion in total deposits. The quantity of deposits in excess of the insurance limitations was unknown at the time of closure. The FDIC will assess the quantity of uninsured deposits after gathering more information from the bank and consumers.
Garg, an alumnus of IIT Delhi, stated that in actuality, SVB has been a strong supporter of the Indian start-up community and has given financial services. This bank is used by the majority of Indian start-ups doing business in the United States since it is one of the few institutions ready to engage with Indian banks. Several banks are unwilling to cooperate with consumers from other countries. SVB has worked with Indian firms that do not have US employees. He went on to say that if they leave, it will be very difficult for Indian firms.
SVB has been one of the most popular banking options for start-ups and the tech sector in Silicon Valley for several years, courtesy its grasp of the business and flexibility in many aspects that fit the start-up ecosystem. Given that almost every third company in Silicon Valley is established by Indian Americans, analysts believe a considerable number of these entrepreneurs may be impacted as early as next week in terms of making basic payments and paying their staff.
Similarly, a big number of Indian firms with no employees or offices in the US opened accounts with Silicon Valley Bank since it allowed them to do so without numerous regulatory problems and with a customer-friendly attitude. According to one source, the implications of SVB’s collapse for Indian Americans and their businesses are serious.
After a meeting to assess the aftermath of the bank’s demise, a group of Silicon Valley venture investors stated that the events of the previous 48 hours had been very disappointing and alarming.
According to a venture capitalist, SVB is the start-up ecosystem’s largest vendor and since they’ve all these loans now, they have no idea what will happen if the loans are sold and called. Moreover, SVB is used by a large number of fintech companies. Thus, we may have seen Rippling, a payroll firm, being unable to provide payroll since their underlying bank is SVB. It may also have repercussions for the financial system in the United States and the rest of the globe.
